How Can Refinancing Affect the Key Aspects of Your Auto Loan?

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by RateGenius
Updated on: January 2, 2024

Refinancing your auto loan can relieve financial pressure, lower monthly payments, reduce interest rates, or even adjust your loan term.

However, it’s crucial to understand the potential impacts on key aspects of your auto loan before diving into the refinancing process.

In this article, we’ll address common questions and concerns related to auto loan refinancing and highlight important elements of auto loans.

Why do I owe more on my car after refinancing?

Refinancing may result in owing more over the course of your auto loan if a change in the loan term length, removing a co-borrower, credit score, payment amount, or interest rate contributes to a higher overall cost.

For example, increasing the number of remaining payments (extending the loan) incurs more interest charges over the life of the loan. This may lead to owing more than the original loan if you compare the cumulative prices of interest payments.

Changes in credit scores, employment status, debt-to-income ratio, and removing a co-borrower can influence the new loan’s terms.

When the main borrower’s credit isn’t strong enough to maintain a comparable rate without the co-borrower, it may contribute to a higher overall amount owed on the account.

Refinancing without a co-borrower starts a new loan. So, it may lead to a higher rate than the previous loan’s terms. If interest rates are higher than they were when the former loan originated, it may lead to owing more than you did under the previous loan.

Refinancing may involve fees such as origination or document fees and prepayment charges, which can add to the overall amount you owe on the loan.

If your credit score has decreased or you’re in a period of financial downturn, and the refi offer will not provide meaningful short-term savings, it may not be worth going through with it.

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How does depreciation influence the price of an auto loan?

Vehicle depreciation plays a role in how much a lender is willing to cover for your loan. If your car has significantly depreciated since the time of your original loan, refinancing might result in owing more than the depreciated value of the vehicle.

On average, a car will depreciate as much as 20 percent in the first year and up to 60 percent within the first five years. Depreciation varies by car model, make, upkeep, and other factors, but new and used cars alike will depreciate over time.

Lenders generally base their refinancing offers on the vehicle’s present market value  So, it’s standard for a lender to offer less than you may have been loaned if the car was brand new.

If you have GAP insurance, you’re protected against vehicles with high depreciation rates. If you’re not covered by GAP and have negative equity on your car loan, improving the terms during refinancing may require a better down payment, co-borrower, or improving your credit and timing your refinancing wisely.

Does refinancing start your auto loan over?

Refinancing doesn’t start your original loan over, but it does start a new loan. The duration of the new loan depends on what the lender is offering you.

When you refinance your auto loan, you’re essentially taking out a new loan to pay off the original loan. You can refinance your car to get a lower rate, lower payment, or take someone off the loan.

One approach to adjusting the rate is to pay off the new loan in the same time or less than the original.

If you had a 60-month loan term and you’ve already paid it for 24 months, you’re not required to start at 60 months again. You can tailor the refinance loan to continue where you left off in your payment schedule. Typically, shorter loan terms equate to lower interest rates. When you’re not accelerating payoff, borrowers should compare savings against the change in interest costs.

Refinancing also offers the option of adjusting the remaining term of your loan.

Using a similar example, if you’ve paid the original 60-month loan for 24 months and refinance, you can choose to start a loan at 60 months, making it longer than originally planned. While this approach affords you more time and a lower payment, it may come with more interest charges over the life of the loan.

Understanding these aspects of refinancing helps you make informed decisions about your loan terms, payments, and how to refinance your car loan effectively.

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Does refinancing change my payment due date?

Refinancing may lead to a change in the due date of your monthly payments.

However, whether the due date changes or not depends on the policies and practices of the new lender you choose when refinancing. It’s crucial to review this with your new lender during the refinancing process to ensure clarity and avoid any missed payments.

If your auto refinancing loan due date is extended, discuss what that means in terms of your payment timeline and the impact on monthly amounts or fees you’re responsible for.

Your due date is a significant aspect of loan management, and any changes should be clearly understood to maintain a smooth payment schedule.

While you are going through the refinance process with a new lender, don’t neglect your current auto loan. So long as the loan is active, continue to make timely payments.

Can I refinance without the cosigner or co-borrower?

You can apply to refinance without a cosigner or co-borrower. Refinancing offers the option to either keep the cosigner or co-borrower or remove them from the loan, depending on your situation and financial goals.

Important distinction:

  • A cosigner agrees to pay the loan back if the primary borrower defaults.
  • A co-borrower shares equal responsibility for the loan and its repayment.

Refinancing without a cosigner or co-borrower can provide financial independence and relieve the cosigner or co-borrower of their obligation. It can also help you develop and build your creditworthiness.

Understanding the difference between a cosigner and a co-borrower and how that role impacts the loan agreement is crucial when deciding about refinancing and loan responsibility.

Remember that changes to cosigners and co-borrowers may influence the interest rates you’re eligible for, as they’ll decide based on your credit history instead of yours and your cosigners or co-borrowers.


It’s essential to understand the nuances of key aspects of auto loan refinancing, such as loan terms, credit scores, interest charges, and the involvement of cosigners.

Additionally, knowing the relationship between refinancing, deprecation, and GAP insurance is crucial for making informed decisions.

By gathering the right information and leveraging resources like RateGenius, you can navigate the refinancing process effectively, optimizing your auto loan to suit your financial circumstances and goals.

Learn how much you can save refinancing with RateGenius’s Auto Refinance Calculator.

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About The Author


A better way to refinance your auto loan. RateGenius works with 150+ lenders nationwide to help you save money on your car payments. Since 1999, we've helped customers find the most competitive interest rate to refinance their loans on cars, trucks, and SUVs.

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